With lawsuits mounting, revenues, profit and stock price all down sharply since it recalled its blockbuster painkiller Vioxx, and its top drug losing patent protection, Merck on Thursday replaced longtime CEO and chairman Raymond V. Gilmartin.
Richard T. Clark, head of Merck’s manufacturing operations, was named president and chief executive, but how much power he will wield is in question. Merck’s board chose to go without a chairman for up to two years, giving those duties to a new, three-member executive committee headed by heavyweight board member Lawrence Bossidy, former CEO of Honeywell International Inc.
David Moskowitz, analyst at Friedman, Billings, Ramsey & Co., said Clark did a good job making Merck’s manufacturing more efficient. He criticized having three board members overseeing Clark.
“It is almost has if he has training wheels on,” Moskowitz said.
Scott R. Henry, analyst at Oppenheimer & Co., called the setup odd and said it appears Bossidy, who dominated conference calls with Clark, reporters and analysts Thursday, is taking a very prominent role.
Bossidy will be chairman of the new executive committee, which includes longtime board members William G. Bowen and Samuel O. Their.
“I’d like to see one person hang their hat there and say, ‘If something goes wrong, I’m responsible,'” Henry said.
Three corporate management experts said they had never before heard of such a triumvirate arrangement.
Clark, 59, began working at Merck in 1972 as a quality control inspector and advanced through jobs in production, new product planning and strategic planning. Then he served as chairman and CEO of Franklin Lakes-based Medco Health Solutions Inc., the huge prescription drug benefit manager. Merck spun off Medco in August 2003.
“Overall, probably a decent choice for a new CEO,” analyst Timothy Anderson of Prudential Financial wrote. He added that Clark likely will rely heavily on Merck’s research director, Peter Kim, “and is unlikely to usher in pure regime change.”
Bossidy called Clark a hands-on leader and superb strategist.
“We think he will do a wonderful job taking this company forward,” Bossidy said.
Asked Thursday whether Bossidy would be the de facto CEO, Clark said he would not take the job under those circumstances.
“I am certainly a change agent and I need full control to do that,” Clark said.
However, Moskowitz noted Clark didn’t offer any new plans Thursday.
Brian Sullivan, CEO of executive search firm Christian & Timbers, said given all Merck’s troubles, few executives would want the “radioactive” CEO/chairman job. He said having Bossidy groom and advise Clark is “as good as it gets” and brings credibility on Wall Street.
Merck shares fell 18 cents to close at $34.75 on the New York Stock Exchange. They have traded between $25.60 and $48.78 over the past year.
Bossidy said that after 11/2 to 2 years, the board will decide whether to appoint a chairman. He would not say whether Merck, which is based in Whitehouse Station, might separate that post from CEO, as some shareholders advocated at their annual meeting last week. Several shareholders disparaged Merck’s handling of the Vioxx issue; one urged Gilmartin to step down.
Gilmartin, the chairman, president and CEO since 1994, will serve as special adviser to the board’s executive committee until March 2006, when he had originally planned to retire. He turns 65 next year.
“In no way did we push him out,” Bossidy said.
Two weeks ago, Merck reported its first-quarter income fell 15 percent to $1.37 billion. It cited much lower sales of top-selling cholesterol-fighter Zocor, which has $4 billion-plus in yearly sales and loses patent protection next spring. Also to blame was the Sept. 30, 2004 withdrawal of Vioxx, a popular arthritis drug that had 2003 sales of about $2.5 billion, 11 percent of Merck’s revenue. Merck pulled Vioxx from the market after its own study showed Vioxx doubled risk of heart attacks and strokes in patients after 18 months of use.
As of March 31, the company had been named a defendant in more than 2,300 product liability lawsuits from customers alleging Vioxx caused heart attacks, kidney damage and other harm. Merck also faces a slew of shareholder lawsuits, with analyst estimating liability of up to $30 billion.
During a conference call, company officials repeatedly stopped reporters trying to ask questions about the Vioxx situation and other Merck problems.
But also on Thursday, Rep. Henry Waxman, D-Calif., released a series of documents which suggest Merck attempted to downplay Vioxx’s risk as it marketed the drug to doctors. Merck said it was in discussions with federal officials about returning Vioxx to the market.
On the Net: http://www.merck.com
